The Bank for International Settlements (BIS) has issued a warning to emerging economies about the financial stability risks associated with adopting cryptocurrencies.
BIS Announces Cryptocurrencies Should Be Controlled, Not Banned
In a report released Tuesday, the BIS stated that vulnerabilities in the crypto market could pose significant risks to financial stability in these countries.
Developing countries are known to be significant crypto users due to volatile exchange rates and limited access to traditional banking services. However, some central bankers from Latin America have expressed concerns about the ability of crypto technology to deliver on its promises and have called for the technology to be controlled rather than banned outright.
The BIS report highlighted a variety of crypto-related risks, including liquidity, credit, operational risks, withdrawal and capital flow risks. He also warned that price fluctuations can lead to market risk if institutions or individuals hold crypto assets directly.
The report encourages local regulators to consider selective bans, limitation and regulation of certain cryptoassets.
Despite these concerns, the BIS admitted that many emerging market participants view cryptoassets as a safe haven against volatile local currencies. This is especially true in Argentina, where Bitcoin-friendly presidential candidate Javier Milei recently won a primary.
BIS research revealed that although cryptoassets have so far increased financial risks rather than reduced them in less developed economies, regulation of the industry would be preferable to a complete ban.
*Not investment advice.